South Korean stock markets had a roller coaster day on Wednesday on foreign sell-offs, despite signs of inter-Korean rapprochement in the wake of South Korean envoys‘ meeting with North Korean leader Kim Jong-un the previous day.

Market watchers remained mixed on whether the North Korean momentum would lead to a long-term upward drive in the local stock markets,

(Yonhap)

On Wednesday, the top-tier stock market Kospi and the second-tier Kosdaq both fluctuated.

Opening lower, both Kospi and Kosdaq rebounded in the late morning trade. But in the afternoon, the gains dried up. Kospi dipped 0.4 percent and Kosdaq sank 2.1 percent.

Oh Jae-young, an analyst at KB Securities, gave a widely optimistic view, saying the impact from easing inter-Korean tensions in the long run would further put an end to “Korea Discount,” referring to a phenomenon where Korean stocks are undervalued due to geopolitical risks.

“If the forthcoming inter-Korea summit manages to freeze North Korean nukes, North Korea and the US will begin talks, significantly diminishing ’Korea Discount‘” Oh wrote. “(The attempt by the South Korea’s envoy) have laid a cornerstone to unravel the complexity of North Korea issue.”

But Seo Sang-young, an analyst at Kiwoom Securities, said the momentum would be short-lived, even if it occurs.

“As seen in the past, issues related to geopolitical risks surrounding the Korean Peninsula would be transient, and fall short of making a turnaround in markets,” Seo wrote in a note Wednesday.

Setting aside the North Korea issue, Seo was also pointed to a “wag-the-dog” scenario as quadruple witching day draws near, when the stock market performance relies on foreign investors‘ activity in futures markets. Quadruple witching refers to a day when futures and options linked to stock indexes and single stocks expire simultaneously.

Meanwhile, Kim Hyoung-ryoul, a stock analyst at Kyobo Securities, said the inter-Korean relationship is not a market factor, adding the stock market moved incoherently.

“I doubt the inter-Korea development brings a change in the market,” Kim said. “Changes in economic indicators do not correlate with the relationship between the two Koreas anymore.”

“Remember the days when the North Korean missile launched and foreign investors kept on buying Korean stocks,” he added.

On the day of the first inter-Korean summit in 2000, Kospi dropped 5.9 percent, while in 2007, when the two Koreas held a second summit, it rose 2.6 percent.

The Korean won strengthened for two consecutive days against the greenback. At Wednesday session‘s close, a dollar was trading at 1,069.1 won, down 7 won from the Tuesday closing.

The sign of detente, coupled with a relief from US trade war threat, would stoke investors‘ risk appetite and “trigger a drop in won-dollar foreign exchange rate,” according to Kim Hyun-jin, an analyst at NH Futures.

Kim added financial authorities here are likely to allow a certain level of won appreciation on possibility of US’ renewed tariff threat.